Mortgage Rates Took a Wrong Turn

Mortgage rates took a wrong turn today, and continued after the ADP report came out this morning.   The most prevalently quoted conforming 30yr fixed rates for top tier borrowers have dropped to 3.75%, but did weaken a little bit.

US stocks did better today after the DJIA fell 460 points on Monday and yesterday. Rate markets started soft as expected this morning and ended a little weaker but the 10yr and MBSs did strengthen off their morning lows. Not sure how much additional support, if any, is being drawn from the terrorist attack in Paris today, as I was surprised there was not much so far.

Financial markets are not disappointing so far on our thoughts of increased volatility. We expect interday trading volatility will remain on the high side and will increase in the weeks ahead. This morning ADP reported private jobs increased a little better than the forecasts, as well as the November private jobs were revised upward.  Job growth continues although it is the same problem - not many higher paying jobs, most jobs coming in the low end of the pay scale in the service sector.

The President stepped up today to help lower income buyers cutting the insurance premiums on FHA loans. The annual fees the Federal Housing Administration charges to guarantee mortgages will be cut by 0.5 percentage point, to 0.85% of the loan balance, Julian Castro, secretary of the Department of Housing and Urban Development, said today. Under the new premium structure, FHA estimates that 2 million borrowers will be able to save an average of $900 annually over the next three years if they purchase or refinance homes. A step long overdue to pump first time buyers.  FHA had been increasing the MIP since 2011 to recover money lost in defaulted mortgages. The upfront fee of 1.75% is not going to change with this announcement. The FHA had a 30 percent share of the mortgage insurance market in the third quarter of last year, down from about 69 percent in 2009, according to data from Inside Mortgage Finance. There is still a possibility that the rate increase may be delayed if commodity prices continue to drive deflation concerns.

Tomorrow, the day before the December employment data - weekly jobless claims are expected down again below 300K. Claims this time of the year at times are volatile and not as reliable because of the holidays. November consumer credit data tomorrow afternoon from the Federal Reserve, as we will focus on the details especially revolving credit, and the use of credit cards. Consumers have been reluctant to use credit since the financial crisis and still show no desire to use plastic. A lot of the reluctance is the usurious rates charged by banks. Wonder how banks sleep at night charging 20% or more while borrowing at 1.0% - yes it covers bad loans but how much is enough?

We gave it a run today.  The 10yr did manage to crawl back to unchanged from yesterday, but MBS prices did not join in the improvements. MBS prices were quite volatile through the session today.

In summary, after a pretty nice run, mortgage bonds had a down day.  The losses however were not too bad but more could be on the way especially with it being jobs week.  For the past year, I have been recommending locking at this point, as the report always causes my stomach to turn.  Except for the last two reports, even with positive data we had, the rates always increase on this day.

Remember, if you want to know the benefits of locking your rate today versus floating, simply give me a call at 314-744-7806 or visit my website at www.CallTheMoneyMan.com. I have access to real time Wall Street data and instant market alerts with breaking news that I monitor throughout the day to assist us on making the informed decision.